Morgan Stanley initiates coverage on The Leela shares with ‘overweight’ rating, Rs 549 target; stock up 5%

Pushed by a “higher-for-longer” upcycle within the luxurious hospitality phase, international brokerage agency Morgan Stanley initiated protection on Schloss Bangalore, the corporate that owns and operates luxurious accommodations beneath the ‘The Leela’ model, with an ‘Chubby’ ranking and a goal worth of Rs 549.

The goal implies an upside potential of 35% from the inventory’s closing worth on Monday.

Following this, the shares of the corporate rose 5% to hit an intraday excessive of Rs 427.20 on the BSE.

Morgan Stanley’s optimistic view is underpinned by a “higher-for-longer” upcycle within the luxurious hospitality phase, robust demand for premium journey experiences, and the corporate’s enticing valuation.

The brokerage additionally cited Schloss Bangalore’s low web debt place and regular execution as key drivers for potential re-rating, whereas flagging focus threat as a key issue to watch.

In keeping with the brokerage’s notice, Schloss Bangalore is likely one of the few listed pure-play luxurious resort operators in India, with a portfolio of iconic heritage-style accommodations infused with trendy structure.The corporate owns 5 operational properties, which account for 93% of its income, and has worldwide awards and industry-leading income per out there room (RevPAR) and EBITDA margins to its credit score.Morgan Stanley highlighted that these operational metrics replicate the premium positioning of the model in India’s luxurious hospitality phase.

The report additionally famous that demand for luxurious accommodations in India stays sturdy, whilst incremental provide additions are reasonable as a result of excessive capital expenditure necessities.

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This demand-supply mismatch helps a sustained uptrend in RevPAR. The brokerage expects annual EBITDA development of 12% by means of FY27, pushed by rising room charges and wholesome occupancy ranges. Web earnings is anticipated to develop ninefold, supported by restricted improve in curiosity prices.

Morgan Stanley additionally acknowledged that the corporate is almost net-debt-free, with enough free money flows to fund its upcoming capital expenditure cycle. Schloss Bangalore plans to open 5 new accommodations comprising 475 rooms, together with one beneath a three way partnership, with all properties anticipated to be operational by FY28.

Adjusted for asset revaluation and promoter recapitalization, Morgan Stanley estimates the corporate’s return on capital employed (ROCE) at round 10% by FY25, up from a reported 7.3%.

By way of valuation, the brokerage sees room for additional upside. The inventory at the moment trades at 18.5x EV/EBITDA on FY27 estimates, in comparison with a median of 29x for listed luxurious resort friends reminiscent of IHCL and homeowners of asset-light fashions like Chalet and Juniper, which commerce at round 20x.

In its base case, Morgan Stanley applies a 25x a number of to Schloss’s FY27 EBITDA, with a bull case a number of of 30x, aligned with IHCL’s valuation, suggesting a possible re-rating.

The brokerage, nonetheless, flagged that over 70% of the corporate’s income is concentrated in its prime three properties, indicating a notable focus threat. Moreover, a pointy cyclical downturn in luxurious demand might strain margins, given the corporate’s excessive mounted price and capital-intensive nature.

Round midday immediately, the shares of Schloss Bangalore have been buying and selling 4.12% larger at Rs 423.40 on the BSE.

(Disclaimer: Suggestions, strategies, views and opinions given by the consultants are their very own. These don’t signify the views of the Financial Instances)